What Do Owner Corporation Fees Cover?
Owner Corporation fees cover everything from building insurance and maintaining common areas to shared utilities, building works, and repairs.
While these fees might be another expense a property investor or homeowner needs to budget for, they are necessary to maintain, repair, and insure the property.
Table of Contents:
What are Owners Corporation Fees?
The levies that you pay every quarter contribute to the running and operation of the building. In strata-titled buildings, the legal entity that owns the building, common property, and amenities is the Owners Corporation, and all owners are by default members of the Owners Corporation.
Owners Corporations are obligated to hold Annual General Meetings, and one of the critical items of business is the adoption and approval of the annual budget.
What do Owners Corporation fees and levies cover?
The annual budget will cover the cost of the building insurance, maintenance, cleaning, lift servicing, common utilities, any other contractors or service providers for the building, and the cost of the owners corporation manager.
Owners Corporation fees or the levies that you pay to the Owners Corporation are:
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Administrative Fund levies / contributions
This administrative fund covers the day-to-day maintenance of the building such as common area gardening, utility bills for common areas, building insurance, common area cleaning, waste collection contractor, exterior window cleaning, security patrols, building management, lift servicing, and cost of the owners’ corporation management company. Essentially any item or cost for the owners corporation that is annually occurring will be part of the administrative fund.
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Maintenance Fund levies / contributions
An owners corporation may establish a maintenance fund that is governed or guided by a maintenance plan. Contributions to the maintenance fund are intended to cover any future capital expenditure (CAPEX) for the building such as re-painting of the building exterior, replacement of common area driveways, replacement of roofs/gutters/down-pipes, replacement of lifts, etc.
Owners Corporations in Victoria, under the Owners Corporations and Other Acts 2021 – the came into effect on 1 December 2021, are now defined into tiers:
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- Tier 1 – More than 100 occupiable lots (and not a services only OC)
- Tier 2 – 51 to 100 occupiable lots (and not a services only OC)
- Tier 3 – 10 to 50 occupiable lots (and not a services only OC)
- Tier 4 – 3 to 9 occupiable lots (and not a services only OC)
- Tier 5 – 2 lot subdivision or services only OC
This new system also has implications as to how and when maintenance plans and funds apply to owners corporations.
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- Tier 1 OCs now must prepare and approve a maintenance plan 12 months after the commencement of the Owners Corporations and Other Acts 2021.
- Tier 2 OCs now must prepare and approve a maintenance plan 24 months after the commencement of the Owners Corporations and Other Acts 2021.
- Tier 3, 4, and 5 OCs may choose to prepare and approve a maintenance plan, but it’s not compulsory.
Maintenance plans can be amended by the Owners Corporation through the passing of an ordinary resolution.
Owners Corporation Act 2006
Act No. 69/2006
Part 3 – Financial Management
39. Report on an approved maintenance plan
The owners corporation must report to the manual general meeting in relation to the implementation of its approved maintenance plan.
Division 4 – Maintenance Fund
40. Establishment of the maintenance fund
An owners corporation that has an approved maintenance plan must establish a maintenance fund in the name of the owners corporation.
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Special Levies
Special levies are raised when there are insufficient funds in the administrative fund and the maintenance fund of the owners corporation.
Owners Corporation Act 2006
Act No. 69/2006
Part 3 – Financial Management
(4) A special resolution is required when exercising power under sub-section(1) if the amount involved is more than twice the total amount of the current annual fees set under section 23.
How are Owners Corporation fees calculated?
Once the budget is approved at the AGM, the levies for each lot owner are calculated based on the lot liabilities for each lot (your building’s plan of subdivision and OC report can be obtained from landata or your owners corporation manager).
In Victoria, owners corporation levies are dictated by the lot liability of each lot. However, there is the notion of the ‘benefits principle’ when it comes to maintenance – which isn’t always as straightforward in real world application and it’s an area that has been tested by various VCAT cases.
Section 49 of the Owners Corporation Act 2006 touches on this notion:
49. Cost of repairs, maintenance or other work
- An owners corporation may recover as a debt from a lot owner the cost of repairs, maintenance or other works carried out under section 48(3).
- An owners corporation may recover as a debt the cost of repairs, maintenance or other works undertaken wholly or substantially for the benefit of some only of the lots from the lot owners, but the amount payable by those lot owners is to be calculated on the basis that the lot owner of the lot that benefits more pays more.
- The works referred to in sub-section (2) may be to the common property or a lot.
Who determines the Owners Corporation fees?
The Committee and the owners corporation manager will typically hold a budget planning meeting in the weeks before the AGM. For existing buildings, the annual budget will often be guided by the previous year’s actual expenses (as a starting point).
Section 23 of the Owners Corporation Act 2006 gives power to the owners corporation to issue levies:
Owners Corporation Act 2006
Act No. 69/2006
Part 3 — Financial Management
Division 1 – Financial Powers
23. Owners corporation may levy fees
1. An owners corporation many set annual fees to cover –
(a) general administrative; and
(b) maintenance and repairs; and
(c) insurance; and
(d) other recurrent obligations of the owners corporation.
2. If the owners corporation has an approved maintenance plan, the annual fees must include fees that are–
(a) designated for the purpose of the maintenance plan; and
(b) sufficient to allow the maintenance plan to be implemented.
3. The fees set must be based on lot liability.
4. The owners corporation may determine the times for payment of fees.
When are Owners Corporation fees collected?
The vast majority of Owners Corporations in Victoria collect owners corporation levies on a quarterly basis i.e. the levies for the 1 January to 31 March will be issued in early December and due on 1 January.
Levies are issued by the owners corporation management company – based on the annual budget divided by the total lot liability multiplied by the lot liability for a given lot.
The Owners Corporation Act 2006 also sets out a defined process that can be followed for overdue and unpaid levies; the process, at a high level, entails the sending of the fee notice, a reminder notice after the due date if unpaid, a final fee notice, the application of penalty interest for unpaid levies, and finally notice of legal proceedings.
Unhappy with your Owners Corporation? See how Strata Management Consultants can help you change your strata manager or with strata consulting services. So, contact us today for insightful information regarding owners corporation fees.
